A better article:
FedEx quarterly profit adds 3%, but '09 looks rough
Reduces salaries to save on costs; CEO gets a 20% pay cut
By Christopher Hinton, MarketWatch
NEW YORK (MarketWatch) -- FedEx Corp. said Thursday its fiscal second-quarter profit edged up nearly 3%, but challenging times in "the worst economic conditions" of the company's 35-year history spurred pay cuts and a hiring freeze.
For the recent quarter, the Memphis, Tenn., shipping giant said earnings rose to $493 million, or $1.58 a share, from $479 million, or $1.54 a share, in the year-ago period.
Revenue at the world's top overnight-delivery provider rose 1% to $9.54 billion.
Analysts polled by FactSet Research expected earnings of $1.58 a share on sales of $10.1 billion, on average.
After being up for most of the day, shares of FedEx were off 1.7% at last check to $62.92. The stock is off nearly 30% since mid-September when a crunch in the credit markets caused a steep deceleration in commercial and consumer spending.
Competitor UPS shares added a fraction to $52.91.
Helping the quarterly bottom line at FedEx was a steep decline in fuel costs
and the exit of German rival DHL from the U.S. market.
Shares of FedEx and its competitor UPS were climbing after FedEx reported a jump in shipping volumes and set pay cuts for some top executives.
Nonetheless, shipping volumes fell across the board, with overnight box shipments off 7% form a year ago and overnight envelope falling 10%. Total average daily package shipping dropped 7% to $3.3 million pounds.
Total average freight pounds fell 14% to 11.2 million.
"We frankly expect the difficult global economic environment will worsen in the second half of fiscal 2009," said Chief Financial Officer Alan Graf on a post-earnings call with analysts.
"Weak economic conditions in the U.S. have spread to Europe and Asia, and ongoing weak global economic factors are expected to further reduce demand for all of our transportation services," he said. "We don't believe we have reached the bottom of industrial production or consumer spending on a quarter-over-quarter basis at this point."
To cut costs, save cash and minimize job loss, the company instituted a hiring freeze and cut salaries for U.S. salaried exempt personnel by 5% effective Jan. 1. Further, FedEx senior executives will get a 7.5% to 10% reduction while Chief Executive Frederick Smith will receive a 20%.
That would equate to a $286,000 haircut for the CEO as his base salary is about $1.43 million a year, according to a recent proxy statement.
Smith said on the call that pay reductions, along with a freeze in hiring, elimination in bonuses and variable incentive pay, as well as a halt to company contributions for employee 401(k) plans, should save the company $200 million in fiscal 2009 and $600 million in 2010.
Furthermore, the company continues its program to ground older, more expensive aircraft, cutting back on flight and labor hours, and optimizing its route structure for greater efficiency, Smith said.
Along with a reduction in capital spending, FedEx projects it will save $1 billion for this fiscal year.
"The global economic downturn continues and we are in some degree
uncharted territory as uncertainty in the marketplace continues," said Fredrick Smith on a post-earnings call with analysts. "We cannot predict exactly how it will unfold."
FedEx CEO calls on Obama to change tax policy
During the call, CEO Smith said he believed the root cause of the current economic crisis was a tax policy that encouraged growth in the financial sector at the expense of manufacturing.
In the early '80s, the financial sector represented about 15% of U.S. industry profit, but that climbed to 32% after the federal government encouraged borrowing through the deduction of interest, according to Smith.
Meanwhile, the tax on capital spending was significant, he said.
"One of the things that we have advocated very strongly in addition to lowering the overall corporate tax rate is to expense capital, and that is a policy that President-elect Obama and his team could put in place," Smith said.
"I said in my comments we've reduced our capital from $3 billion to $2.4 billion," Smith added. "Well, if we can make capital investments and get the money back in the year they were made, it makes our workforce more productive."
He dismissed economic stimulus plans that encourage consumer spending, saying in tough economic times people will just put it towards reducing their debt.